Significant strides towards gender equality

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Despite significant strides towards gender equality, women remain underrepresented on company boards today. According to the European Institute for Gender Equality, in 2024 women accounted for an average of 35.1% of board members in the largest listed companies and only 8.4% of Chief Executive Officer (CEO). This underrepresentation persists despite ample evidence that women's presence on boards enhances corporate governance, team results, and decision-making quality.?

1. The principle of gender equality at the EU level

In the European Union, gender equality is a fundamental right enshrined in Article 21 of the EU Charter of Fundamental Rights and is also a general principle of EU law. One of the EU's most significant contributions has been to mainstream gender equality, including in the workplace, as stipulated in Article 8 “Equality between Women and Men” of the Treaty on the Functioning of the European Union. This means that a gender perspective must be integrated into the preparation, implementation, and monitoring of legal measures, actions, and programs. The EU ensures that its actions promote gender equality, and Member States cannot undertake actions that contradict this principle.

The EU Gender Equality Strategy for 2020-2025 sets policy objectives to make substantial progress towards a gender-equal Europe by 2025. A key objective is achieving equal participation across different sectors of the economy, addressing gender balance in decision-making and politics.?

Under the current European legal framework companies are required to disclose information about their gender policy. To be precise: (i) the Non-Financial Reporting Directive (NFRD) obliged companies to disclose in their corporate governance statement their diversity policies in relation to their administrative, management and supervisory bodies; (ii) the Corporate Sustainability Reporting Directive (CSRD) specifies that the diversity policies must include a reference to gender.?

2. The Directive “Women on board”?

After 10 years of negotiations, the Directive on gender balance in corporate boards was adopted on November 22, 2022. Its objective is to facilitate access for qualified women to serve on the boards of directors of listed companies, with the aim of promoting the principle of equal opportunities between men and women on boards where female representation is lacking and improving corporate governance. It is widely recognized that the presence of women on boards improves corporate governance, as more diverse and collective mindsets enhance team results and decision-making quality (Recital 12 of the Directive).

Member States must ensure that the underrepresented gender occupies at least 40% of non-executive director positions (Article 5.1(a)) or at least 33% of all director positions, both executive and non-executive (Article 5.1(b)). If a member State applies the Directive only to non-executive directors, it must still set individual minimum targets to improve gender balance among executive directors (Article 5.2). To prevent the underrepresented gender from exceeding the other and creating a new imbalance, the less represented gender must not exceed 49%. The Directive's purpose is not to promote automatic and unconditional preference but to prioritize equally qualified candidates of the underrepresented gender to avoid gender-based discrimination. Exceptions are possible in exceptional cases justified by an objective assessment.

The Directive applies to large listed companies, excluding micro, small, and medium-sized enterprises, defined as those employing fewer than 250 persons and with an annual turnover not exceeding EUR 50 million or an annual balance sheet total not exceeding EUR 43 million.?

Listed companies will have to provide annual information on gender representation in their boards of directors to the competent authorities. If the targets have not been met, they must explain how they intend to achieve them. This information will be published on the companies' websites to ensure it is easily accessible.

To ensure the effective implementation of these rules, the Directive requires member states to adopt sanctions that are effective, proportionate, and dissuasive. Sanctions may include fines or the possibility for judicial bodies to annul or declare null and void the selection decision that violated national provisions adopted under Article 6.

Directive timeline?

By December 28, 2024, Member States must implement the Directive, and large listed companies must achieve one of the set targets by June 30, 2026.?

Furthermore:

• by December 29, 2025, and biennially thereafter, Member States must report to the Commission on the implementation of the Directive.?
• by December 29, 2026, and biennially thereafter, the Commission will issue a report assessing compliance with the Directive. ?
• by December 31, 2030, and biennially thereafter, the Commission will review the Directive's application, assessing its effectiveness in achieving gender balance on boards and considering potential extensions or amendments beyond its expiration on December 31, 2038, as per Article 14.

The information provided in this article is for general informational purposes only and does not, and is not intended to, constitute legal advice.